Error costs Tower $4.9m super

Trans-Tasman life insurer Tower will pay $4.9 million to 33,000 investors whose investments in a former FAI Life retail superannuation product were understated due to a computer error.

The payments are the result of a review undertaken by Tower at the behest of the Australian Securities and Investments Commission. The move follows similar problems with Tower's Blue Ribbon products earlier this year that resulted in ASIC winning an enforceable undertaking from the company.

Tower Australia's managing director, Jim Minto, said the affected customers included about 20,000 current customers and 13,000 former customers who had redeemed their investment in the FAI Personal Superannuation Plan since 1989. They represent around half of the customers for the product, which was inherited by Tower when it bought FAI Life in 1999.

Those that have already redeemed policies will be tracked down via the advisers that originally sold the products - a process that could take some months. The customers will be paid any shortfall, plus interest.

Mr Minto said the cost of the error would result in a provision of close to $3 million in Tower's full-year accounts, due out tomorrow, while future year profits would also be affected. The cost of fixing the computer error is $800,000.

Mr Minto, who was brought in a year ago to fix Tower's Australian operations, played down the chances of further errors in other Tower products.

"We have a big compliance project running here and we have been working on this stuff all year. We are not aware of anything of a similar nature," Mr Minto said.

He denied the FAI Life acquisition was ill-advised, saying the business was in good shape. "This is very much a technical error," he said. "I don't think there's anything about FAI [Life] we have since discovered that would have changed our decision at that time."

Tower shares fell 2c to $1.20. Tower had a first half loss of $NZ154 million, thanks to $NZ190 million in write-downs.